How Much Money Do You REALLY Need to Retire?

Several weeks ago, my team and I got together on Zoom to talk about how much money you really need to live the life you want in retirement and how to make sure you’re on track to do just that. Here’s the recording and the transcript, in case you missed it.


Hello everyone. Welcome to our webinar today. I’m Leslie Buck from Pennsylvania Capital Management. I’m joined with Irvin Shorsch, our founder and president, and also Christopher Mallon and Andrew Randisi, who are both, um, certified financial press professionals here at Pennsylvania Capital Management. (···0.5s) Our webinar topic today is how much money do you really need to live the life you want? (···0.9s) And I will throw it over to you, Irvin, to get us started. Good morning everyone.  

I’m glad you can join us today. (···1.4s) I just finished reading an article where the magic retirement number was $1,460,000, and that’s absurd. (···1.6s) There’s so many factors that are involved with what is the right (···0.5s) number you need to live the life you want, (···0.7s) especially as you enter retirement. (···0.7s) Andrew, what’s your take on this? (···1.0s) Sure. I would say what, when you’re looking for in retirement, you’re gonna want to ask yourself the question, how should I replicate my income?  

(···0.6s) And that’s gonna come from a couple different revenue, uh, monthly revenue streams for you. (···0.5s) First, I would say for most of us, and we’ll talk about this a little bit later, social security benefits are gonna be a important part of what’s monthly comes in the till each month. (···0.7s) Then if you are fortunate enough, fortunate to be one of the very few that still has a pension, pension benefits month, uh, monthly pension benefits will be another portion that’ll stack right on top of the social security.  

But for the ma vast majority of us, we’re gonna be drawing on what we have saved in our nest eggs, whether that be in a taxable brokerage account or a qualified retirement account. (···3.4s) Interesting. Chris, any any thoughts you wanna add? Yeah, I think, um, when we, you know, I’d read this article and saw it, I laughed a little thing we have, so a very common question we get for pretty much all of our clients is, what can I, what do I need when I retire?  

Right? It’s a very normal question to ask. A lot of new clients will ask that, (···0.6s) and I don’t think there’s ever been a time unless you have Irvin, before I started here, have told anybody you need $1,460,000, or you need a million, or you need 10 million. It’s never been a specific number off the top of your head. There’s a lot, like you said, everything that goes into it, right? It’s usually our response when someone says, what do I need to retire? Is usually, oh, (···0.8s) I don’t know.  

What does it cost you to live? Now? That’s the first question. And then (···0.7s) that is usually a hard to answer question for many folks, and you start there and kind of, you know, have to get in the weeds, do the math on building an amount, okay? If you were to take X amount out of your portfolio over, you know, your retirement lifetime, which now can be 20, 25, 30 years, this is how much of a cushion you would need for us to, you know, feel the warm and fuzzies that, oh, you’re not gonna, you know, run outta money.  

There’ll be stuff to pass onto your heirs if that’s a goal of theirs. So, yeah, yeah, the specific (···0.6s) number thrown out always, you know, gives us pause and many advisors pause saying like, okay, there’s, there’s more to it than that. It depends Actually, I think (···0.7s) if we look at the variety of questions we get. Another big one (···1.0s) is I’ve heard I can live off of 4% of my principle forever. Mm-Hmm. (···0.6s) Reality or bogus, (···1.4s) what do you think?  

I’ll, um, so I’d say a little bit of both, and there’s two ways to go about it. What I like to the history of the 4% rule, which is the common rule of thumb thrown around is, you know, again, how much can I pull outta my portfolio safely over my lifetime and not run out of money? That 4% number came from looking back. If I were to take out X percent over 10, 15, 20, 30 (···0.5s) years looking at historical market returns, that 4% got you through even the worst series of returns afterwards.  

So if you retired somewhere, you know, in the seventies before very long bear market, 4%, you made it through. (···0.5s) However, not all markets over that period of time perform that poorly. So the real number fluctuates, and it really does depend what you’re getting from the market, how you’re invested and what your spending is as well. Um, so there’s a lot of things outta your controls to what’s a safe number. There are different, you know, professionals now that say 3% new number due to higher amounts of inflation and volatility in markets.  

There’s some people that say, oh, the market gives you seven to 10, you can take seven to 10. (···0.9s) There’s probably happy middle ground there. Um, so again, it’s one of those things that’s kind of, you know, (···0.7s) it depends and you have to do the math. And my favorite way to go about doing it with clients is really look at that number every year and kind of give somebody a budget. Hey, if you’re a business band, you’re safe to spend. Which really gives people a lot of confidence, right?  

It’s like, Hey, you can take that extra trip, you’re spending 2% of your account a year, you can live a little bit larger. Or (···0.9s) the opposite case happens as well be like, Hey, you’re drawing out, you know, closer to that 7, 10, 12 number. Let’s try and bring it back down to something that’s a little bit safer. Uh, so it’s a good, uh, it’s a good rule of thumb that can be adjusted year to year versus looking at year one and then living with that number forever. (···2.5s) Just to add to that, in the 28 years since PCM was founded, (···1.9s) I’ve seen a, (···0.5s) a very wide disparity, (···1.4s) depending on (···0.7s) how excited (···0.7s) the retirees that we’re discussing, of course, (···0.7s) yet about, let’s call it the extra spend, it’s the second trip to the Sey Shell Islands (···1.7s) after the trip to Madrid for two weeks, (···0.7s) followed by the new portion.  

(···0.9s) It doesn’t work very well.  

(···0.9s) Too big a monkey wrench into that mix of, (···1.0s) of let’s say distribution levels for the clients. (···0.9s) So it’s really important, as Chris was just saying, that we reexamine every year, we see what went on. Was it a tough market? Were there some excess expenses? And look, that’s part of the role we serve as fiduciaries to help them see (···0.7s) if they need to (···0.7s) pull things back a bit as far as their spending, or (···0.7s) they’ve been very, very reasonable over the last three or four years.  

The markets were supportive, we were able to develop the proper asset allocations. So the combination of the two make for some more flexibility. (···1.0s) Irvin, what are some, um, expenses you see clients not (···0.7s) necessarily plan appropriately for (···0.5s) in retirement? Right? So we see a lot of clients who go through retirement years. Where are some things people come in, A lot of times we get a new client who’s has just retired and then they think they have enough, and then things kind of come up.  

What, what have you seen? (···1.5s) Here’s the big one. Healthcare costs. Mm-hmm. (···1.9s) People may be lulled into this sense of everything’s okay, I’ve got medical insurance. (···0.9s) Well, a lot of the exceptions these days, even for Medicare, (···1.3s) you’ve gotta pay (···0.9s) those copays. (···1.1s) And if it’s outta network (···1.0s) and your doc is one that you love dearly, then you’ve gotta pay extra.  

Because the out-of-network bans, meaning the amount that they’re willing to cover are a lot larger before Medicare might, or, or whatever insurance you have might kick in. (···0.6s) So we find that’s something we have to study. What are the degrees of excess spending due to medical costs? Or if someone gets sick (···1.1s) and they have an or, or they have an accident (···0.7s) and they need (···0.7s) additional medical care. That’s a big one. Uh, some of the other ones (···1.5s) that, that are top of mind (···1.0s) would be if you develop a new expensive hobby.  

I mentioned the Porsche example earlier, but if you decide all of a sudden (···0.8s) that you wanna rotate your car on a two year lease ’cause you wanna try new cars, that adds a lot to the budget. (···1.0s) Or (···0.9s) another big one is one of the kids has problems, (···0.5s) maybe they need medical help or psychiatric help or something else. Those are very big costs (···0.7s) and that’s a big deal.  

(···1.8s) Or also I would add, you know, care for your parents. We have a lot of clients who are hitting retirement and still caring for, for elderly parents. (···1.0s) Yeah, they call it the what, the sandwich generation, right? So you’ve got kids who are just coming out of school who might need some support in various ways. And then you’ve got parents who are, you know, in those, (···0.5s) you know, eighties or nineties, still living longer lives and they might have started to run outta some funds.  

’cause when they retired, longevity wasn’t, you know, late eighties, you know, mid nineties, it was seventies and eighties. So yeah, definitely, uh, you can get squeezed in two different directions, uh, from two sides now. (···0.5s) And besides healthcare, what a lot of people often overlook is income taxes. (···0.8s) Mm-Hmm. Um, especially with a lot of our clients that you’ve, you’ve thought you’ve done a fantastic job. You’ve saved a couple million in your 401k, your 4 0 3 B, your IRA and it’s all pre-tax dollars. Um, when you try and draw that, that million bucks or so is not yours.  

Part of it’s Uncle Sam’s too, because that’s, he’s allowed you to defer all that, those gains for a 30, 40 working year career. But now it comes time Uncle Sam wants his payday and depending upon your age, uh, you’ll have to take required minimum distributions, uh, starting either at 73 or 75. (···0.6s) And that’s often things. Sometimes we have some clients go, but (···0.7s) we spent 180, but it all came outta your IRA.  

So really that 180 is more like closer to 200,000, 200 plus thousand dollars. You really need to spend when you account for uncle, uncle Sam’s cut too. (···0.5s) Yeah. Yeah. And that’s why (···1.0s) determining that spend rate really year to year, the tax planning is really important. ’cause, and we talk about when we’re looking at clients who pull, especially if they’re taking out a little bit more than that four or five, six, 7% range of the account, it can create a tax snowball or as what we, you know, kind of say here is the fact that it’s like, okay, they need a hundred, 200,000, like you said, it’s 1520, sometimes 30% more than that would be the gross number that comes outta the account all of a sudden that you know, hey, I’m only spending four or 5% of the account, we’re actually spending closer to six.  

’cause you have to factor in the taxes on top of it. Which, um, yeah, I’d say that along with long-term care (···0.5s) severely overlooked, uh, as well, (···2.4s) Andrew, (···1.0s) is what you spend during the working years, the ultimate determinant (···0.6s) of what you can afford to spend in retirement.  

(···0.5s) What have you found? Uh, I’d say it really depends what lifestyle you wanna maintain. Um, whether that’s a hundred percent of your benefit, a hundred percent of your, uh, lifestyle expenses, um, during your working careers. Or oftentimes we could see you may wanna only live off of 70 or 80. Um, with that cca, with that occasional trip, um, plan, wanting to see plan, what you kind of wanna forecast in retirement, uh, is probably the best way to go about doing it.  

So, as Chris had mentioned before, we can kind of want, we wanna find out, we wanna start with the end in mind to kind of determine if you have enough saved (···0.7s) or you might need to either wanna still wanna continue to work in retirement to support that, to support that full life, maintain that full 100% lifestyle (···0.6s) or, uh, you may need to delay retirement a little bit longer. (···2.1s) Yeah, yeah. No, I agree with that. I think, um, ’cause we have various amounts of clients here.  

Some will be big earners and big livers. Some will be lower earners, but not big livers. And then vice versa, it’ll spin all around. Um, and a big factor that comes into that too, to (···0.7s) help answer that question is what do you want to leave to your errors, if anything? So a lot of times the math is, the math is easy, right? I have retired, I have 1 million, 2 million bucks. I spend X amount, (···0.6s) assume this growth rate, how